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The Swiss government has published draft legislation allowing the country's banks to hand the US government the names of staff and third party tax advisors and lawyers who have dealt with their American clients.

The legislation is an attempt to resolve the long-running campaign waged by the US Department of Justice (DoJ) against up to 300 Swiss banks that it suspects of helping wealthy American clients evade tax. The leading bank, UBS, came to a USD780 million settlement with the DoJ in 2009, but Credit Suisse, Julius Baer and others are also being pursued, and some are being threatened with criminal indictments.

Under the legislation now put to the Swiss parliament, banks will be encouraged to negotiate their own agreements with the US to avoid criminal penalties. As with UBS, these will include substantial but as yet undetermined fines as well as enforced disclosures. Swiss President and Finance Minister Eveline Widmer-Schlumpf has publicly warned that the banks ‘will not get [agreement] for nothing ... It is clear that it will not be a pleasant solution’.

Under US pressure, the Swiss are setting up a special procedure to push the legislation through both chambers as fast as possible. It will come into force after the summer and remain in effect for 12 months.

‘The urgency is due to the fact that the US is unprepared to wait any longer,’ said a statement from the Swiss Federal Council. ‘The solution chosen will allow legal closure to be achieved without having to enact new legislation with retroactive effect or indeed applying emergency law’.

Banks will then be able to disclose to the DoJ any information, apart from client information, that is ‘necessary to safeguard their interests’. This includes information about ‘business relationships concerning US persons and details on people who were involved in the US business of the respective banks’. Banks that do this will however be required by Swiss law to protect their employees by keeping them informed about planned disclosures, paying their legal costs, and defend them against ‘discrimination and dismissal’.

Clients' identities will only be disclosed through a valid administrative assistance treaty request, said the Council.

The Swiss Bankers Association said it was worried that no information whatsoever was available regarding the scheme that the US DoJ will offer the Swiss banks. It is also concerned about the possibility of very large fines, and urged the Swiss government to ‘make every effort’ to help the banks negotiate fines that are in proportion to the wrongdoing being alleged by the DoJ.

The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.